The Gateses Are Right: Invest in the Poor

Bill and Melinda Gates co-authored an opinion piece in last week’s Wall Street Journal imploring us all to stay the course on U.S. foreign aid. They note that total U.S. foreign-aid spending amounts to less than 1% of the federal budget, which is not much.

The Gateses go on to cite data from the Organisation for Economic Co-operation and Development (OECD) that says American taxpayers spent $12.8 billion on global public health in 2016, a figure only about four times what the Bill & Melinda Gates Foundation itself spends. Their just-released report details the human impact in data and narrative form after nearly two decades of aggressive philanthropy.

The Gateses have earned the right to preach a bit here.

High ROI

The bang for buck from all this generosity has been impressive. AIDS, for instance was dramatically slowed as a global epidemic in part by the President’s Emergency Plan for AIDS Relief (PEPFAR), launched by George W. Bush in 2003.

Infant mortality was also significantly reduced in Ethiopia, an important country of 100 million people, where deaths per 100,000 live births were cut by almost 60% with aid to public health. And in terms of the broadest measure of poverty, we’ve seen outright deprivation cut by over 70% since 1990.

The Gateses are saying that, though we’re on the right track, we’re increasingly at risk of pulling back at just the wrong moment.

I agree.

Supply Chain Strategy and Investing in the Poor

Governments and charitable organizations have long played leading roles in channeling aid to the world’s needy. Judging by the television advertisements used to raise cash, the pitch rests on morality. The Gateses’ editorial says as much: “Disease and poverty are the clearest examples we know of solvable human misery, and the moral case for wiping them out is clear on its face.” To the Gateses it’s all about altruism, and that’s fine. But what if we look at it in selfish terms?

Here are four purely self-interested, operational reasons to support continued aid to the poor:

1. The Poor Are Consumers – Growth-starved businesses in consumer industries are over capacity. External pressure to cut costs and grow margins arises not from profligacy, but from a shortage of organic growth. Finding ways to reduce prices, unit sizes and the capital equipment required to access low-income markets offers a topline story to activist investors. Unilever, Diageo and Nestlé are all good examples of this dynamic at work.
2. The Poor Are Producers — Plummeting poverty since 1990 is mostly the result of massive economic growth in China and India, not of generosity from the West. China in particular rose not only out of misery, but up and into such a role of importance for manufacturing that entire sectors came to rely almost exclusively on their expertise and assets. Supply chain leaders in toys, furniture, apparel and electronics became almost too dependent on China by around 2010.
3. The Poor Can Become the Middle Class — Henry Ford learned this. When he introduced the $5 daily wage in his Detroit factories investors were aghast. The rate of pay was more than double going wages and introduced mainly to reduce worker turnover. Cheap, unstable labor, it turns out, was bad for production, so Henry Ford fixed it. The end result was a big, growing pool of people able to buy more stuff. Is it not logical that scaling up health care, logistics and retail workforces in poor countries would do the same?
4. The Poor Can Become Your Worst Enemy — Foreign aid has an unfortunate ring of omnipotence, implying the great powers’ magnanimity. Investing in the poor, however, is as much about preserving order as bestowing the good life. The Gateses makes one pithy point that should ring true for anyone watching the news these days: “When people anywhere are desperate, people everywhere are at risk.” Unwanted immigration, travel-crippling terrorism, high-seas piracy, and even ransomware often start with someone who has nothing to lose. By this logic, foreign aid is a bit like insurance, prepaying for lower risk.

Supply chain leaders need not be political. They must, however, choose plant locations, develop distribution networks, hire staff, position inventory and prepare for disruptions. Investing in the poor is not charity so much as good housekeeping.

Let’s keep it up.